In Berlin’s government district, a so-called “debt clock” hangs on an office building. Installed by the German Taxpayers’ Federation, a lobby organization advocating lower taxation and public spending, it is meant to be a reminder of Germany’s rising national debt. Against a black display, the red numbers climb higher and higher every day. On July 6 at 1:00 p.m., the debt clock read €2.78 trillion ($3.18 trillion).
The draft budget for 2027, announced on Monday, will drive debt levels up further. Germany’s finance minister, Lars Klingbeil of the center-left Social Democratic Party (SPD), estimates that spending for 2027 will total €555.4 billion.
Of that amount, €109.7 billion is earmarked for defense spending, a third more than in 2026.
Because expenditures far exceed tax revenues, Klingbeil’s plan, once again, calls for taking on more debt — just under €119 billion. But that is far from the whole story.
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Two special funds for infrastructure and military
Then there’s also spending from debt-financed special funds, which act as a kind of shadow budget. Since these funds are spread out over several years, they are not listed in the current budget.
At a staggering €500 billion, this fund is earmarked for the maintenance and restoration of infrastructure and for achieving Germany’s goal of becoming climate-neutral. Spread out over 12 years, the money will go toward repairing dilapidated bridges, roads and the rail network, among other things.
An additional special fund has also been established for the Bundeswehr, Germany’s Armed Forces. By 2029, Germany plans to gradually increase its defense spending to 3.5% of gross domestic product (GDP), which is a measure of economic output. By 2035, it is expected to reach the new NATO target of 5%.
Klingbeil justified the Bundeswehr fund by citing Russia’s war in Ukraine. “[Russian President Vladimir] Putin’s imperialist delusions pose a greater threat to peace in Europe than we have seen in a long time,” said Klingbeil after the Cabinet meeting. “We cannot defend ourselves against Putin with a balanced budget.”
Instead, he said, Germany must make up for the three decades in which defense spending was “cut back” as quickly as possible. “Doing that without incurring new debt is impossible — it’s like flying to the moon without a rocket.”
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What about Germany’s debt brake?
If debt from the regular budget is added to that from the special funds, new debt is projected to reach around €203 billion in 2027. Over the years to come, this trend is expected to persist.
Based on the federal government’s financial planning, the German Chamber of Commerce and Industry has calculated that spending will rise by an average of 5% per year through 2030. Meanwhile, tax revenues will grow only half as fast during the same period — namely, by about 3% per year.
What’s more, the more debt the government accumulates, the more interest it must pay. By 2030, interest is expected to reach €80 billion, and almost one in five euros of tax revenue could be spent on interest.
Yet the Basic Law, the German Constitution, stipulates that the government may spend only as much as it collects in revenue. This is known as the debt brake. Additional borrowing may not exceed 0.35% of gross domestic product (GDP).
Defense and security spending is largely exempt from the debt brake, while economic downturns allow for higher debt limits. However, as Europe’s largest economy and the third largest in the world, Germany can afford the debt, Klingbeil emphasized. “Our debt level is well below the Eurogroup average.”
In the eurozone, debt is limited to no more than 60% of GDP. In 2027, Germany’s debt will stand at 69.5%.
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Germany’s sluggish economy
What’s more, Germany is mired in a deep economic crisis, and the economy is growing weaker year by year. When it took office in May 2025, the federal government — composed of the conservative Christian Democratic Union (CDU)/Christian Social Union (CSU) and the center-left SPD — announced that it was going to revive the economy. Instead, however, the crisis has persisted.
“Donald Trump‘s reckless war against Iran has cut the economic recovery we expected for this year in half,” Klingbeil complained in Berlin. “This war is costing Germany money.”
Despite more taxes, government cuts are bound to come
New sources of revenue are expected to come from the introduction of a plastic tax, a sugar tax and higher taxes on tobacco and alcohol. There are also plans to tax the wealthy — a “tax on the super-rich,” as Klingbeil puts it.
But that is just a drop in the proverbial bucket, and government cuts will inevitably have to come. This will not only affect the government’s own ministries and their budgets, but also the financial aid the federal government provides to support social security funds.
The pension and health insurance funds are notoriously strapped for cash and require billions in annual subsidies from the federal government. Those subsidies are now set to be reduced because there is no more money available.
The German Trade Union Confederation is calling it an “enormous imbalance” because social welfare benefits are being used to fund the restructuring, while military spending is rising dramatically.
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Klingbeil also intends to draw on the Climate and Transformation Fund (KTF), which is funded by revenues from the EU Emissions Trading System. This has drawn sharp criticism not only from environmental groups but also from the environmentalist Green Party. On Sunday evening, in an interview with the website table.media, Green Party leader Felix Banaszak said the money must not be misused to plug budget holes.
German ministries face ‘tough decisions’
Klingbeil has demanded — and continues to demand — across-the-board cuts from all ministries. Only the Defense Ministry is exempt. In 2027, the cuts amounted to 1% of each ministry’s respective budget. In 2028, the ministries are expected to cut by three percent.
So ministries will increasingly have less money at their disposal. Development aid, in particular, has been cut back in recent years. In 2027, its budget is set to be cut by another €500 million, bringing the total down to €9.5 billion.
Finance Minister Klingbeil spoke of “tough decisions” that had been made. However, he added that this does not change the fact that Germany remains “a truly credible partner” on the international stage. “Following the withdrawal of the US from international development financing, we are now the largest donor.”
Meanwhile, the children’s aid organization Save the Children called on the Bundestag to “significantly improve the draft budget during the parliamentary process and increase funding for humanitarian aid and development cooperation in line with actual needs.”
Following the summer recess, the parliament will begin deliberating on the draft budget in September. The 2027 budget is scheduled to be adopted at the end of November.
This article has been translated from German.
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